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The banking scene is in for a change. The role of a banking is also
changing. Banking has made a shift from being traditional to going online.
It is now marked by intense competition, narrowing margins, growing
customer and regulatory pressure and technological developments.
During the last decade, five powerful forces have created the foundation
for a dynamic new environment for banks. They are as follows:
ii.) Financial innovation
v.) Advances in technology
Basis for Reforms in the Indian Banking Sector
Root causes that were behind the dull performance of banks and
prompted the initiation of the banking sector reforms are:
Greater emphasis on directed credit
Regulated interest rate structure
Lack of focus on profitability
Lack of transparency in the banks’ balance sheets
Lack of competition
Lowered Entry Barriers
The Indian banking industry apparently lacked a competitive environment,
thereby affecting efficiency. To induce competitiveness in this sector, the
industry was opened up to participation by private sector banks and foreign
Deregulation the Interest Rates
One of the major reforms measures undertaken is the phased deregulation of
interest rates. Directives have been issued for total deregulation of the interest
rates on deposits and almost total regulation of the lending rates.
With this regulation of interest rates, banks now have gained flexibility in their
Branch licensing has been abolished and branch expansion norms have been
relaxed enabling the banks to revamp their organizational structures. Banks
have been given the freedom to open or close branches to suit their
Regulatory Reforms In the Banking Sector
The government has introduced the following norms to take banking
Prudential Norms: Prudential norms were introduced to strengthen the banks’
balance sheet and enhance transparency. These prudential norms which relate
to income classification, provisioning for bad doubtful debts and capital
adequacy serve three important purposes.
Firstly The income recognition norms reflect a true picture of
the income and expenditure of the bank.
Secondly The asset classification and provisioning norms help
in assessing the quality of the asset portfolio of the bank
Thirdly The capital adequacy which is based on the
classification of assets suggests whether the bank is in a viable
position to meet any adverse situations due to a decline in the
decline of its quality of assets.
Consequences of Liberalization of the Banking Sector
Payment and settlements systems
Indian financial network (INFINET)
Electronic fund transfer (EFT)
Centralized funds management systems (CFMS)
Automated teller machines
The Reasons for the development of the Internet Banking
The following reasons can be related to as the primary drivers of Internet
Better customer access
Offering more services
Attract new customers
Decrease the erosion of the customer base
Advantages of Internet Banking
Special interest rates on different accounts such as savings, and CDs.
Checking, payment of bills without any monthly fee, and with concessions
on ATM surcharges.
Credit cards with lesser charges.
Easy processing and online application procedure for all transactions,
accounts, personal loans and mortgages, etc.
Round the clock access to the account.
Service quality and personal care.
Innovative Banking Products
Some Innovative banking products by different banks
‘Revolve’: A personal finance product from American Express banks
‘Café in a bank’ concept from ABN-Amro Bank
Laghu Udhyami Crdit card from Camara Bank
FlexiFinance from HSBC
“Super Suraksha”, from SBI Life
STOCKINVEST: It is a new type of financial instrument where a guaranteed
cheque given out by the commercial banks in place of cash, personal cheque, or
draft to the investors against their deposits in the bank.
STORED-VALUE CARDS OR SMART CARDS: It is a new mechanism for
making electronic payments which would simply change the first
step in the purchase sequence.
Many changes have taken place in the Indian banking sector. Many banks have
set up their subsidy companies and asset-liabilities management companies
and enters into the related activities apart from the traditional deposits and
Banc assurance and Film financing are the examples of diversification by the
banks in the recent origin.
Security Concerns in the Banking Industry
It is important to study the concept of BANK FRAUD which forms the basis for
Meaning of Bank Fraud: It is a part of financial fraud and includes violations of
law at bank or using accounts of a financial institution for unlawful purposes.
Bank Fraud and India
In order to have uniformity in reporting cases of frauds, the RBI of India has
classified the frauds on the basis of the provisions of the Indian Penal Code in
the following categories. Following are:
Misappropriation and criminal breach of trust
Negligence and cash forgery
Cheating or forgery
Irregularities in foreign exchange transactions
L/C or Bank Guarantee
Any other type of fraud not covered above
Security Considerations in the Banking Industry
Credit Card Security
ATMs and Security
Electronic Fund Transfer Security
IT Audit and Banks
Information Security Audit